Am I being ripped off?
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Am I being ripped off?
I'm currently managing 2/3 of my portfolio by myself in typical Bogleheads fashion. 1/3 of my portfolio, however, is managed by Morgan Stanley. I initially chose to do that as I wasn't entirely confident in my ability to manage such a large portfolio (seven figures), so it was sorta reassuring to have at least a third of my funds managed by a professional.
I recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
What's the deal? Is my estimate completely wrong or are they charging me some hidden fees?
Thanks for your help!
I recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
What's the deal? Is my estimate completely wrong or are they charging me some hidden fees?
Thanks for your help!
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Re: Am I being ripped off?
I also did the math and came out with $4230. for the annual return, which looks similar to your math. Since I don't buy those securities I don't know what the charges might be. I am enjoying Vanguard's Prime Money Market account which has a current return of 2.42% and no fees attached.
John Bogle: "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
Re: Am I being ripped off?
the last treasury auction for 26wk bills was on 5/13, price per 100 was 98.809417. so yes you are being ripped off in a big way.
Re: Am I being ripped off?
buy treasuries thru vanguard or treasury direct
Re: Am I being ripped off?
I don't understand why you're paying professionals to manage your money, then telling them how to manage it.
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Re: Am I being ripped off?
Perhaps it is time to manage the remaining 1/3 of your portfolio yourself?michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pm I'm currently managing 2/3 of my portfolio by myself in typical Bogleheads fashion. 1/3 of my portfolio, however, is managed by Morgan Stanley. I initially chose to do that as I wasn't entirely confident in my ability to manage such a large portfolio (seven figures), so it was sorta reassuring to have at least a third of my funds managed by a professional.
I recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
What's the deal? Is my estimate completely wrong or are they charging me some hidden fees?
Thanks for your help!
Right away.
Re: Am I being ripped off?
Take the plunge. You are already doing 2/3 of the portfolio.
Say good-bye and thanks to Morgan Stanley and do it yourself.
Carl W.
Say good-bye and thanks to Morgan Stanley and do it yourself.
Carl W.
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Re: Am I being ripped off?
It’s not exactly that. I had this money that needed to be invested somewhere, and they offered a bunch of options from which I chose the treasuries (which was also their recommendation).
Re: Am I being ripped off?
No offense, but 180k in treasury bills is dirt simple (and cheap) to buy via weekly Treasury auctions through Vanguard and its hard to screw up. Even easier than buying ETFs in my opinion. This is coming from a guy who isn't a "market player" when it comes to this stuff. It's a few clicks. Can you maybe just call Vanguard to open up a brokerage and have them walk you through how treasury auctions work next time? FYI we all have made a mistake. Yours at least wasn't costly.michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pm I'm currently managing 2/3 of my portfolio by myself in typical Bogleheads fashion. 1/3 of my portfolio, however, is managed by Morgan Stanley. I initially chose to do that as I wasn't entirely confident in my ability to manage such a large portfolio (seven figures), so it was sorta reassuring to have at least a third of my funds managed by a professional.
I recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
What's the deal? Is my estimate completely wrong or are they charging me some hidden fees?
Thanks for your help!
-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks.
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Re: Am I being ripped off?
I might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
- Sandtrap
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Re: Am I being ripped off?
There's no good reason for you to stay.michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pmI might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
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Re: Am I being ripped off?
I already have a lot of treasuries both at Vanguard (VUSXX/VTAPX) and Schwab (SCHO/SCHR). I don’t mind the minuscule ER for the convenience of using funds.TheDDC wrote: ↑Fri May 17, 2019 10:13 pm No offense, but 180k in treasury bills is dirt simple (and cheap) to buy via weekly Treasury auctions through Vanguard and its hard to screw up. Even easier than buying ETFs in my opinion. This is coming from a guy who isn't a "market player" when it comes to this stuff. It's a few clicks. Can you maybe just call Vanguard to open up a brokerage and have them walk you through how treasury auctions work next time? FYI we all have made a mistake. Yours at least wasn't costly.
-TheDDC
But yes, I also buy treasuries at Morgan Stanley because I have an account over there so I might as well use it. I’m not sure anymore it’s a good idea to keep this account though...
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Re: Am I being ripped off?
Very bizarre to me to manage the majority of your account but pay what I assume is a hefty AUM to get a risk-free return asset. Move it all.
Fidelity allows you to auto-roll t-bills but a treasury bond fund like you’ve got is perfectly fine at Vanguard.
Fidelity allows you to auto-roll t-bills but a treasury bond fund like you’ve got is perfectly fine at Vanguard.
Re: Am I being ripped off?
No, they're just charging you an AUM fee of ~0.9%. Which of course is almost half of your return when you buy a treasury bill yielding 2.35%.michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pm I might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
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Re: Am I being ripped off?
They’re not supposed to charge me an AUM for the fixed income. The only fees I’m aware of are the order commissions which are generally $1 per $1,000 face value, which is reasonable.DonIce wrote: ↑Fri May 17, 2019 11:25 pmNo, they're just charging you an AUM fee of ~0.9%. Which of course is almost half of your return when you buy a treasury bill yielding 2.35%.michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pm I might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
If they did charge me the AUM you mentioned without telling me, they’ll definitely lose me as a customer
Re: Am I being ripped off?
There was another thread of BofAML's Merrill Edge where the rates for treasuries were below market rates. That is just how they make their commission. So, while it's not AUM directly, it is a commission that works like AUM.michaeljmroger wrote: ↑Sat May 18, 2019 12:38 amThey’re not supposed to charge me an AUM for the fixed income. The only fees I’m aware of are the order commissions which are generally $1 per $1,000 face value, which is reasonable.DonIce wrote: ↑Fri May 17, 2019 11:25 pmNo, they're just charging you an AUM fee of ~0.9%. Which of course is almost half of your return when you buy a treasury bill yielding 2.35%.michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pm I might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
If they did charge me the AUM you mentioned without telling me, they’ll definitely lose me as a customer
Are they giving you some other perks like free turbo tax, free lunch, or free event tickets?
Re: Am I being ripped off?
Please let us know what their response is.
Re: Am I being ripped off?
Whenever you are dealing with a financial professional and you don't understand their projection, tell them to show you their math.michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pmI recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
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Re: Am I being ripped off?
Assuming this is correct, you should have made $2,143.04. However, you report that you made $1,350 per your broker.
You are being ripped off. Just under $800 on this single, simple trade.
A little bit here, and a little bit there. It really adds up.
Take control of your own money. You're likely paying thousands of dollars per year for something that you can do yourself.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Re: Am I being ripped off?
You’re paying a big price for this help. Id encourage you to do it yourself. You’ll learn a lot in the process and save a bunch too.
Good luck to you.
Good luck to you.
"I started with nothing and I still have most of it left."
Re: Am I being ripped off?
and they didn't have to use a gun or mask either....... who do you think pays for the broker's yachts?michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pmI might actually do it. Can you confirm there’s no good reason for the return I’m getting? Am I missing something?
I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
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Re: Am I being ripped off?
michaeljmroger:I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
Morgan Stanley has paid over 5 BILLION DOLLARS in fines since 2000 for violating the law.
https://violationtracker.goodjobsfirst. ... an-stanley
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Am I being ripped off?
Wow...Taylor Larimore wrote: ↑Sat May 18, 2019 8:01 ammichaeljmroger:I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
Morgan Stanley has paid over 5 BILLION DOLLARS in fines since 2000 for violating the law.
https://violationtracker.goodjobsfirst. ... an-stanley
Best wishes.
Taylor
"I started with nothing and I still have most of it left."
Re: Am I being ripped off?
How is it even legal for them to be allowed to still stay in business? Unbelievable!Taylor Larimore wrote: ↑Sat May 18, 2019 8:01 ammichaeljmroger:I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
Morgan Stanley has paid over 5 BILLION DOLLARS in fines since 2000 for violating the law.
https://violationtracker.goodjobsfirst. ... an-stanley
Best wishes.
Taylor
A time to EVALUATE your jitters: |
viewtopic.php?p=1139732#p1139732
Re: Am I being ripped off?
Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
I buy 6 month bills at auction on fidelity with autoroll. It’s very easy. I don’t see any reason to pay anyone to do it for me.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
I buy 6 month bills at auction on fidelity with autoroll. It’s very easy. I don’t see any reason to pay anyone to do it for me.
Re: Am I being ripped off?
I'd call them and ask for an explanation over the phone. This is not something that should require any research on their part. All they need do is just look at the trade confirmation and explain the math.michaeljmroger wrote: ↑Fri May 17, 2019 10:19 pm
...I asked them to clarify where this number comes from but they haven’t replied yet. I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
As far as robbing you, most on this forum (myself included) would consider the AUM fees you are paying along with the (likely high) ER of the funds they are putting you in to be form of robbery.
Since you are managing the majority of your money now anyway and have gotten up to speed on low cost investing, it's probably time to cut them loose.
Please report back on their answer to the question.
Real Knowledge Comes Only From Experience
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Re: Am I being ripped off?
Here’s all the info I have about it:folkher0 wrote: ↑Sat May 18, 2019 8:57 am Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
- Quantity: 180,000
- Price: 99.615468
- Matures: Oct 31, 2019
- Issue date: Oct 31, 2014
- Coupon: 1.5% fixed
- Yield to maturity: 2.35%
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Re: Am I being ripped off?
That’s... disgusting. Thanks for the link!Taylor Larimore wrote: ↑Sat May 18, 2019 8:01 ammichaeljmroger:I’m probably extremely naive but I simply cannot imagine they’re literally robbing me...
Morgan Stanley has paid over 5 BILLION DOLLARS in fines since 2000 for violating the law.
https://violationtracker.goodjobsfirst. ... an-stanley
Best wishes.
Taylor
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Re: Am I being ripped off?
That’s actually exactly what I did, and I also showed them my math and asked them to explain me what was wrong with it. I’m still waiting for their answer...JoeRetire wrote: ↑Sat May 18, 2019 6:13 amWhenever you are dealing with a financial professional and you don't understand their projection, tell them to show you their math.michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pmI recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
Re: Am I being ripped off?
Based on Rasta's pricing upthread, it looks like someone made 1 point on your purchase.michaeljmroger wrote: ↑Sat May 18, 2019 9:22 amHere’s all the info I have about it:folkher0 wrote: ↑Sat May 18, 2019 8:57 am Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
- Quantity: 180,000
- Price: 99.615468
- Matures: Oct 31, 2019
- Issue date: Oct 31, 2014
- Coupon: 1.5% fixed
- Yield to maturity: 2.35%
Re: Am I being ripped off?
I don't think that is correct.printer86 wrote: ↑Sat May 18, 2019 9:29 amBased on Rasta's pricing upthread, it looks like someone made 1 point on your purchase.michaeljmroger wrote: ↑Sat May 18, 2019 9:22 amHere’s all the info I have about it:folkher0 wrote: ↑Sat May 18, 2019 8:57 am Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
- Quantity: 180,000
- Price: 99.615468
- Matures: Oct 31, 2019
- Issue date: Oct 31, 2014
- Coupon: 1.5% fixed
- Yield to maturity: 2.35%
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
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Re: Am I being ripped off?
I’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
Re: Am I being ripped off?
They are very good at charging you fees that you can't begin to ferret-out in any way that you can understand.michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pmWhat's the deal? Is my estimate completely wrong or are they charging me some hidden fees?
My friend's father used MS to manage his $1.5mil portfolio, rejecting his son's protestations that they were harvesting large fees along the way. After his father died, my friend got access to all the financial records. He took the starting and ending balances of the MS portfolio and compared it with a hypothetically identical VG portfolio over the same time period (15 years) and found that MS had raked off $700k in fees (ie, the ending value of a VG portfolio would have been almost $700k higher).
MS had my friend's 94 y/o father's portfolio invested 100% in equities, repeatedly stating that it was completely appropriate for a 90+ y/o person.
You do the math on your own MS portfolio (if it is possible) and decide if you really can't manage all of this on your own.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Re: Am I being ripped off?
Michael,michaeljmroger wrote: ↑Sat May 18, 2019 9:50 amI’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
You did not pay $180,000 for the bonds you purchased. You bought $180,000 FV bonds at a cost of $179,308 ($180,000 x .99615468). You will get $180,000 when the bonds mature (the $692 difference being the accretion I was referring to) plus the coupon interest between now and then.
They quoted the 2.35% because that is the total (annualized) rate of income earned on the bond. What difference does it make to you whether it all comes in the form of coupon or bond value accretion? FWIW, had you purchased original issue 6-month treasuries, you would have paid $177,857 ($180,000 x .98809417 - using rasta's figure upthread). All of the income would have come in the form of accretion in the value of the bond (as happens with Treasury bills).
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Re: Am I being ripped off?
Thank you so much for your detailed explanation, helps a lot!MikeG62 wrote: ↑Sat May 18, 2019 10:01 amMichael,michaeljmroger wrote: ↑Sat May 18, 2019 9:50 amI’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
You did not pay $180,000 for the bonds you purchased. You bought $180,000 FV bonds at a cost of $179,308 ($180,000 x .99615468). You will get $180,000 when the bonds mature (the $692 difference being the accretion I was referring to) plus the coupon interest between now and then.
They quoted the 2.35% because that is the total (annualized) rate of income earned on the bond. What difference does it make to you whether it all comes in the form of coupon or bond value accretion? FWIW, had you purchased original issue 6-month treasuries, you would have paid $177,857 ($180,000 x .98809417 - using rasta's figure upthread). All of the income would have come in the form of accretion in the value of the bond (as happens with Treasury bills).
So, if you’re right about this, it means that 1) I’m actually not being ripped off on this one (good news!) and 2) that their “projected income” value is confusing for the average investor like me.
Re: Am I being ripped off?
No, not a dumb question at all. It's important to understand where your return is coming from, and how much that return will be. In this case, you bought 180 bonds for $996.15468 each. When they mature, you will receive $1,000 per bond (the face value), and you will receive $7.50 interest per bond ($1,000 times 1.5% divided by two, since this is only half a year).michaeljmroger wrote: ↑Sat May 18, 2019 9:50 amI’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
Therefore, if there was no commission, you paid $179,307.84 at the outset. You will receive $180,000 (gain of $692.16) and interest of $1,350. The total return is $2,042.16, which is about 1.14% of your original outlay in six months. This annualizes to 2.29% (square 1.0114 and subtract 1). I don't know why it's listed as 2.35%. Did you, perhaps, purchase the note slightly after April 30, making the term slightly less than six months? If so, then the annualization of 1.14% will be slightly more than 2.29%.
In the broker's estimate of income, they count only the coupon payment ($1,350). The remaining income will mostly likely be reported as interest income on your year-end 1099-B, because I think that's how purchase price "discount income" is reported (rather than as a capital gain).
My suggestion: Check the trade confirmation. Was the total price paid $179,307.84 plus a little accrued interest (about $7.50 for each day after April 30)? If so, you are fine. If there was any added commission, then that will lower your annualized return. For example, a $1 commission per bond would lower your annualized return by about 0.2%.
Last edited by depressed on Sat May 18, 2019 10:39 am, edited 1 time in total.
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Re: Am I being ripped off?
Thanks a lot for this, I feel slightly less stupid nowdepressed wrote: ↑Sat May 18, 2019 10:24 amNo, not a dumb question at all. It's important to understand where your return is coming from, and how much that return will be. In this case, you bought 180 bonds for $996.15468 each. When they mature, you will receive $1,000 per bond (the face value), and you will receive $7.50 interest per bond ($1,000 times 1.5% divided by two, since this is only half a year).michaeljmroger wrote: ↑Sat May 18, 2019 9:50 amI’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
Therefore, if there was no commission, you paid $179,307.84 at the outset. You will receive $180,000 (gain of $692.16) and interest of $1,350. The total return is $2,042.16, which is about 1.14% of your original outlay in six months. This annualizes to 2.29% (square 1.0114 and subtract 1). I don't know why it's listed as 2.35%, but it may have something to do with the term being slightly less than six months because of calendar tomfoolery.
In the broker's estimate of income, they count only the coupon payment ($1,350). The remaining income will mostly likely be reported as interest income on your year-end 1099-B, because I think that's how purchase price "discount income" is reported (rather than as a capital gain).
This confirms what MikeG62 stated before so I guess Morgan Stanley isn’t stealing my money after all. Phew!
Re: Am I being ripped off?
I think you’re straight, OP.michaeljmroger wrote: ↑Sat May 18, 2019 9:22 amHere’s all the info I have about it:folkher0 wrote: ↑Sat May 18, 2019 8:57 am Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
- Quantity: 180,000
- Price: 99.615468
- Matures: Oct 31, 2019
- Issue date: Oct 31, 2014
- Coupon: 1.5% fixed
- Yield to maturity: 2.35%
To clarify, you didn't buy 6 month bills, you bought 5 year Notes 6 months before maturity at market value. Adding the coupon payments and redeeming the notes at maturity (value of 100 compared to the 99.615 you bought at) will give you the yield to maturity of 2.35% which is the same as 6 month bills bought at auction.
I don't use managers, and the distrust for them on this forum is well founded. However I think you're ok on his transaction, and would be pretty surprised if they were going to so massively screw you on a simple treasury buy.
Re: Am I being ripped off?
Looks like OP's question has been well-answered. On a related note, while a $1 commission per $1,000 may not be outrageous, several brokers offer $0 commissions on both new and market-purchased treasuries. For $180,000, I prefer paying $0 commission v. $180.
"No man is free who must work for a living." (Illya Kuryakin)
Re: Am I being ripped off?
You bought the bonds at a small discount. When they mature, you will get 100% face value. The increase in value back to face value is figured into your yield to maturity. Your interest payments are 1.5% of your face value. You will get the $692 as the bond goes from the discounted price to face value over time. About 2/3 of your return is interest and about 1/3 is capital gain.michaeljmroger wrote: ↑Sat May 18, 2019 9:50 amI’m not entirely sure to understand where those $692 come from to be honest. Are you saying I’ll eventually receive those $692 in addition to their $1,350 projected income?MikeG62 wrote: ↑Sat May 18, 2019 9:42 am I don't think that is correct.
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re. the coupon, (180000 x 1.5 / 100) / 2 does make $1,350, but then I just don’t understand why the 2.35% yield is even quoted if it doesn’t apply.
Sorry if I’m asking dumb questions!
A fool and his money are good for business.
Re: Am I being ripped off?
I'm glad my erroneous post helped get the OP the answer he was looking for. My work is done here.MikeG62 wrote: ↑Sat May 18, 2019 9:42 amI don't think that is correct.printer86 wrote: ↑Sat May 18, 2019 9:29 amBased on Rasta's pricing upthread, it looks like someone made 1 point on your purchase.michaeljmroger wrote: ↑Sat May 18, 2019 9:22 amHere’s all the info I have about it:folkher0 wrote: ↑Sat May 18, 2019 8:57 am Your calculations assume you purchased the bills at auction and hold to maturity.
Are you sure the bills weren’t bought on the secondary market? If so perhaps your 6 month bills are maturing at a variety of dates up to 6 months which could account for the lower than expected income.
To be sure, if your intention was to buy at auction and your broker did something else, its yet another reason to leave them. I’m sure if you called them they would explain why your numbers are different then theirs. Whether that explanation is satisfactory or not would be interesting to hear.
- Quantity: 180,000
- Price: 99.615468
- Matures: Oct 31, 2019
- Issue date: Oct 31, 2014
- Coupon: 1.5% fixed
- Yield to maturity: 2.35%
The bonds OP bought are Treasury Notes and TN's pay interest periodically at the coupon rate. This is different from original issue 6-month Treasury Bills, which are sold at a discount to face value (where the interest is the difference between what you pay and what you get at maturity). So the $1,350 represents the remaining coupon payments. In addition, the bonds will accrete up in value between the time you purchased them and maturity (by $692). Adding the coupon of $1,350 to the value accretion of $692 gets you pretty close to the $2,100 you were expecting.
Re: Am I being ripped off?
Yes you are getting ripped off. Manage everything yourself through Vanguard. Use the money you are paying the financial advisor to save more and give some to the charity and cause that you prefer so you help those in need and not make others that do not need help richer.
" Simplicity is the ultimate sophistication" Leonardo Da Vinci.
Re: Am I being ripped off?
Great. When they answer, let us know what the discrepancy was.michaeljmroger wrote: ↑Sat May 18, 2019 9:26 amThat’s actually exactly what I did, and I also showed them my math and asked them to explain me what was wrong with it. I’m still waiting for their answer...JoeRetire wrote: ↑Sat May 18, 2019 6:13 amWhenever you are dealing with a financial professional and you don't understand their projection, tell them to show you their math.michaeljmroger wrote: ↑Fri May 17, 2019 5:46 pmI recently asked them to purchase $180,000 of 6-month treasury bills. They told me the current yield was 2.35%, which sounded ok to me. I received a notification when it was done and I saw that the projected income was only $1,350. By my estimate, the return should have been over $2,100.
(I'm assuming you weren't able to figure it out for yourself when you saw their math).
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